Strategically Minded

Validated Learning in the Lean Startup

Reis promotes the idea of “Validated Learning” for new entrepreneurs who are seeking to start building on their entrepreneurial vision. Validated learning is supposed to be a rigourous and methodological model through which entrepreneurs can reduce waste during the product development phase. Reis’ validated learning model follows the teachings of Taiichi Ohno and Shigeo Shingo who started the lean manufacturing revolution in Toyota.

Lean manufacturing is concerned with value creating activities and waste in manufacturing facility, and how to build quality into a product from the inside out. Progress in manufacturing is measured by the production of high-quality physical goods, while Reis measures progress in entrepreneurial ventures through an altogether different unit called validated learning.

Learning is the essential unit of progress for startups as without learning entrepreneurs will continue to waste time in development of products that are not required by customers. therefore validated learning in an entrepreneurial setting deals with the reduction of waste spent building products that consumers do not desire and are thus not marketable.

Validated learning begins with testing the entrepreneurs grand vision into what Reis refers believes are the two most important assumptions of the entrepreneurial venture, Value Hypothesis and Growth Hypothesis that are tested with the introduction of a Minimum Viable Product (MVP).

The value hypothesis tests the viability of the product or service in the market, and its ability to deliver value to the customers. The growth hypothesis tests the virality of the product and its ability to grow without too much coercion thus ensuring its stickiness to customers. These hypothesis are tested though the development of a MVP, where the basic product or service is tested to ensure the plausibility of the value and growth hypothesis. Unlike in focus group testing or interviews, entrepreneurs can actually measure what customer actually do through giving MVP to their customers and measuring the interaction with the product.

Maximising Shareholder Return is Not Enough

This article are my thoughts regarding Steve Denning’s excellent review and commentary of Roger Martins new book “Fixing the Game“.

To give you some background:

  • In 1976 Jensen and Meckling wrote an article that suggested a solution to the Principle-Agent problem. Their solution was based on the premise that the singular goal for a firm is to maximise shareholder value. Denning describes their article as being academic in nature, in that they create a problem to which they then propose a solution, rather than it being based on any real-world scenario.
  • In 1973 Peter Drucker, quite contrary to the position taken by Jensen and Meckling, believes that the singular role of business is “to create a customer”.

I do not believe that maximising shareholder return is the sole purpose of a corporation. If we start by looking at any company of repute, than we see that they all have certain characteristics in common, they proudly promote their vision, mission and values. The visions and mission of each company varies widely but most follow a common theme, that they all wish to contribute to their stakeholders and society, while making a profit. Profit is for them is necessary for sustainability, however is only a means to a much greater end. Corporate social responsibility pioneers would also tell us to look at the triple bottom line, or People, Planet and Profits, with profits being in this case a tertiary concern.

However, why is the case? Why should we look after the shareholders interests only? Friedman’s views states that as corporation are not natural persons, their right is only to stay within the law, and unlike natural people they do not have social responsibilities. It carries on to say that a company should not use its profits for social needs, rather social decisions should come from the shareholders, and in a case of multiple shareholders the firm should distribute profits in the form of dividends and the shareholders themselves can independently decide how to utilise their earnings.  Is this argument good enough?